The rules to economic activity are complex, and we are concerned mostly with the ethical dimension to economic rules and behavior. Questions to consider are:
What is the relationship between ethics and economy?
How "just" are the results of economic activity and wealth distribution?
How do we act ethically when it comes to economic decisions?
What makes human actions "good" in this sense?
What is ethics, and how do we justify ethical rules?
Economic value is mostly expressed in terms of money. What are human values, and how do values get expressed through economic activity?
What is the relationship between the economic system and ethics?
Markets are the result of free actions by multiple participants, but they can't function without a regulatory system. Markets function within a highly organized and structured environment, that can itself be seen as an ethical structure, producing an ethical climate.
We commonly believe that market economies work best because they are based on individual initiative, and function with minimal government interference. Markets are self-regulating systems that match consumers with producers, and they create rapid innovation that benefits everyone. The historical record shows that market economies advance the common good for societies better than any other economic system.
But is this really true? Thoughts to consider:
what is useful (or profitable) is not always good, the market operation does not create a more ethical society per se.
Markets create inequality, even though they distribute goods very efficiently.
Markets are not necessarily self-correcting (i.e. bubbles). The economic impact on society needs to be continuously adjusted by the political process.
How do Ethical Systems view the Market Mechanism?
1. A contractarian ethic justifies a market economy by showing that enforcing its legal rules will enable self-interested participants to avoid the dilemmas of cooperation.
2. A rights-based, libertarian justification of a market economy argues that if the economy has arisen historically from fair initial appropriation and a fair sequence of exchanges, then even an unequal distribution of income and wealth is justified.
3. An indirect, economic utilitarian justification of a market economy argues that, under conditions of perfect competition, the self-interested actions of market participants will lead to equilibrium in the prices and quantities of goods. This equilibrium will maximize overall net benefits as measured in financial terms.
4. The assumptions of this utilitarian justification for a market economy include no monopolies, no returns to scale, no positive or negative externalities, no public or open-access goods, no lack of information, no transaction costs, and no problems with a willingness to pay as a measure of the strength of preferences. In practice, market failures arise from the violation of these assumptions.
5. A liberal egalitarian justification of a market economy points out that we can use market mechanisms to efficiently produce goods and services, and then use redistributive taxation or other political means to better the condition of the least advantaged members of the market society.
Readings for this section: